Being new to Terry and starting at Mort on the advice of a Pratchett loving friend, I can honestly see Terry improving as the Discworld series progresses.

Withes Abroad and Small Gods have been by far, in terms of narrative, the strongest so far. I liked Mort, Sourcery and Pyramids but I feel Small Gods really demonstrates his ability to tell a good story and load it with interesting ideas and questions.

SwordfishTrombone, you might want to visit the Small Gods discussions here. There's a lot of great insights over what it all means, Pterry's views of religion, and how (at least from my POV), Small Gods marks the 'transition' from Pterry as a writer of funny comic fantasy books to someone who is able to bring far more profound ideas into his narrative as he purposefully begins to flesh out the world he has created. Lords and Ladies is a great book to read after Small Gods, since it was his next work, and moves the narrative milleau of the witches' stories to a deeper meaning as well.